What do the next ten years hold for bribery and compliance law and enforcement?
A lot has happened over the last ten years in terms of bribery and compliance awareness and enforcement. The UK’s much heralded Bribery Act 2010 (“UKBA”) has replaced centuries’ old laws to become the global gold standard of bribery and corruption legislation. Deferred prosecution agreements (“DPAs”), once the preserve of the US Department of Justice (“DOJ”), are now available in several jurisdictions to resolve corporate misconduct. The importance of establishing a corporate culture that does not tolerate wrongdoing, backed by appropriate compliance policies and procedures, has never been greater. We have examined all these topics in previous blog posts. What, then, for the future?
Using our crystal ball we have identified four particular areas in which we predict there will be continued emphasis and development: moves to redefine or extend corporate liability for criminal wrongdoing; an increased emphasis on the public-private partnership to tackle financial crime; an increasing use of DPAs to resolve misconduct; and last, but most certainly not least, the continuing cooperation between global enforcement authorities to tackle and resolve large-scale bribery and corruption.
The re-examination of corporate criminal liability in the UK
The perceived challenges surrounding the prosecution of companies for criminal offences have been well-rehearsed over recent years. Enforcement authorities have highlighted the difficulties they say are presented by the “identification principle” under which it must be shown that a senior person representing the company’s directing mind and will was involved in or agreed to the relevant wrongdoing in order for that wrongdoing to be imputed to the company itself. The problem for prosecutors is that it can be very difficult to show that someone senior enough to be considered a directing mind and will was involved in or even knew about the misconduct, especially for larger companies, whose directors and senior officers may be far removed from the levels where criminal activities are typically alleged.
A Call for Evidence on Corporate Liability for Economic Crime published by the Ministry of Justice (“MoJ”) in January 2017 resulted in no clear consensus from respondents on what should replace the identification principle if it were to be revised. In November 2020 the Government asked the Law Commission to re-examine the issue. At the time of writing, a second Law Commission consultation (Corporate Criminal Liability – A discussion paper) had just closed. That consultation included a revival of the proposal to extend the “failure to prevent” concept of liability beyond section 7 of the UKBA to other economic crime offences (such as fraud, money laundering and market abuse) as a new basis for corporate accountability. Were it to be accompanied by an “adequate procedures” defence, as in the UKBA, such a reform could potentially lead to a further overhaul of corporate culture and compliance programmes as organisations seek to protect themselves against additional criminal exposure.
Whatever the outcome of this latest discussion, the question of how and when an English corporate should be held to account for the misconduct of those acting on its behalf is likely to be the topic of argument and debate for some time to come.
An increasing emphasis on the private-public response to financial crime
Given the growing incidence of fraud, money laundering and related offences and the limited resources of public enforcers, the private sector is increasingly being asked to step up and shoulder some of the burden of detecting and preventing business crime.
The UK’s anti-money laundering (“AML”) regime already places stringent requirements on relevant persons to have systems and controls in place to identify, assess, manage and mitigate the risk of money laundering and terrorist financing. It is likely that additional sectors, as has recently happened in the art market, will become subject to these requirements as criminals find new ways to carry out their activities.
Improving the use of suspicious activity reports (“SARs”) has been highlighted as one of the areas in which the private sector has a major role to play. The government is working to introduce new IT systems to improve data analytics and increase resources working in financial intelligence units responsible for processing SARs. But improved IT systems and increased intelligence come at a cost. The government has now published draft legislation to fulfil its intention to introduce a mandatory economic crime levy as part of its commitment to tackle economic crime. This will impose an annual levy on regulated businesses, based on the business’s UK revenue, which will go towards funding the planned improvements.
An increasing use of DPAs to resolve corporate wrongdoing
We expect to see the use of DPAs extended to other high risk compliance areas, including offences particularly relevant to the financial services sector, such as breaches of financial sanctions regulations, failure to prevent the facilitation of tax evasion and unauthorised performances of regulated activities. This is likely to follow on from increased enforcement activity from OFSI and the NCA as the new UK sanctions regime becomes embedded and diverges from that of the EU. Increased regulatory attention is also likely in relation to the ESG agenda, particularly around reporting standards. Similarly, as ESG grows in prominence, the DPA regime may even be expanded to include environmental offences themselves. Given that it is generally acknowledged that the practical impact of the DPA regime has been to encourage a notable improvement to preventative policies and procedures, extension of the regime in such a way can only be of benefit to companies and their wider stakeholders.
Continued and increasing cooperation between global enforcers
The landmark bilateral data access agreement was entered into by the U.S. and UK in October 2019. Under the Agreement, law enforcement, when armed with appropriate court authorisation, may now go directly to tech companies or communication service providers based in the other country to access electronic data, rather than going through governments. This development is expected to allow for more efficient and effective access to data and thus dramatically speed up criminal investigations and prosecutions involving electronic evidence of crimes.
The framework for post-Brexit judicial and law enforcement co-operation between the EU and the UK was recorded in the EU-UK Trade and Cooperation Agreement (“TCA”) in December 2020. The TCA provided general agreement for authorities in the UK and EU, including police and customs, to assist each other with security related matters in relation to the prevention, investigation, detection and prosecution of criminal offences and the fight against money laundering and terrorist financing through direct transmission of information and requests for mutual assistance.
The TCA also committed the UK and EU to maintaining comprehensive AML and counter-terrorist financing regimes, including maintaining high standards of beneficial ownership transparency. It was envisaged that its provisions would be accompanied by additional Memoranda of Understanding in due course. While none has yet been published, the opportunity for negotiation of post-Brexit trade agreements in the coming years will undoubtedly involve a greater degree of information sharing between global enforcers.
The government’s announcement in June 2021 of its free trade agreement with Australia marked the first ‘new’ UK trade deal since Brexit. The agreement in principle includes a commitment to best-practice transparency and anti-corruption provisions. In the full legal text of the agreement, due to be finalised by the end of 2021, both countries will outline their shared ambition to combat the distorting impact of bribery and corruption on trade, including through the adoption of mutual cooperative provisions on embezzlement, money laundering, and asset recovery. It would not be surprising to see wide-ranging information gathering powers being awarded to Australian authorities and received in turn by the UK.
A longer and more detailed version of this article was published on our Client Knowledge Portal, available here.